Law & Medicine: Antitrust issues in health care, part 2

Question: On antitrust, the U.S. courts have made the following statements, except:

A. To agree to prices is to fix them.

B. There is no learned profession exception to the antitrust laws.

C. To fix maximum price may amount to a fix of minimum price.

D. A group boycott of chiropractors violates the Sherman Act.

E. Tying arrangement in the health care industry is per se illegal.

Answer: E (see Jefferson Parish Hospital below). In the second part of the 20th century, the U.S. Supreme Court and other appellate courts began issuing a number of landmark opinions regarding health care economics and antitrust. Group boycotts were a major target, as was price fixing. This article briefly reviews a few of these decisions to impart a sense of how the judicial system views free market competition in health care.

In AMA v. United States (317 U.S. 519 [1943]), the issue was whether the medical profession’s leading organization, the American Medical Association, could be allowed to expel its salaried doctors or those who associated professionally with salaried doctors. Those who were denied AMA membership were naturally less able to compete (hospital privileges, consultations, etc.).

The U.S. Supreme Court held that such a group boycott of all salaried doctors was illegal because of its anticompetitive purpose, even if it allegedly promoted professional competence and public welfare.

Wilk v. AMA (895 F.2d 352 [1990]) was the culmination of a number of lawsuits surrounding the AMA and chiropractic. In 1963, the AMA had formed a Committee on Quackery aimed at eliminating chiropractic as a profession. The AMA Code of Ethics, Principle 3, opined that it was unethical for a physician to associate professionally with chiropractors. In 1976, Dr. Wilk and four other licensed chiropractors filed suit against the AMA, and a jury trial found that the purpose of the boycott was to eliminate substantial competition without corresponding procompetitive benefits.

The U.S. Court of Appeals for the Seventh Circuit subsequently affirmed the lower court’s finding that the AMA violated Section 1 of the Sherman Act in its illegal boycott of chiropractors, although the court did not answer the question as to whether chiropractic theory was in fact scientific. The court inquired into whether there was a genuine reasonable concern for the use of the scientific method in the doctor-patient relationship, and whether that concern was the dominating, motivating factor in the boycott, and if so, whether it could have been satisfied without restraining competition.

The court found that the AMA’s motive for the boycott was anticompetitive, believing that concern for patient care could be expressed, for example, through public-education campaigns. Although the AMA had formally removed Principle 3 in 1980, it nonetheless appealed this adverse decision to the U.S. Supreme Court on three separate occasions, but the latter declined to hear the case.

In Goldfarb v. Virginia State Bar (421 U.S. 773 [1975]), the Virginia State Bar enforced an "advisory" minimum fee schedule for legal services. The U.S. Supreme Court found that this was an agreement to fix prices, holding, "This is not merely a case of an agreement that may be inferred from an exchange of price information ... for here a naked agreement was clearly shown, and the effect on prices is plain."

The court rejected the defendant’s argument that the practice of law was not a trade or commerce intended to be under Sherman Act scrutiny, declaring there was to be no "learned profession" exemption.

However, it noted that special considerations might apply, holding that "It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts, which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently."

Following Goldfarb, there remains no doubt that professional services – legal, medical, and other services – are all to be governed by the antitrust laws.

A flurry of health care–related antitrust cases, including Patrick v. Burget (to be discussed in part 3), reached the courts in the 1980s. In Arizona v. Maricopa County Medical Society (457 U.S. 332 [1982]), the county medical society set maximum allowable fees that member physicians could charge their patients, presumably to guard against price gouging. However, the U.S. Supreme Court, using the tough illegal per se standard, characterized the agreement as price fixing, despite it being for maximum rather than minimum fees.

The court ruled, "Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting perhaps the erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. ... Maximum prices may be fixed too low ... may channel distribution through a few large or specifically advantaged dealers. ... Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices."

At issue in Jefferson Parish Hospital District No. 2 v. Hyde (466 U.S. 2 [1984]) was an exclusive contract between a group of four anesthesiologists and Jefferson Parish Hospital in the New Orleans area. Dr. Hyde was an independent board-certified anesthesiologist who was denied medical staff privileges at the hospital because of this exclusive contract. The exclusive arrangement in effect required patients at the hospital to use the services of the four anesthesiologists and none others, raising the issue of unlawful "tying," where a seller requires a customer to purchase one product or service as a condition of being allowed to purchase another.

In a rare unanimous decision, the U.S. Supreme Court, while agreeing that the contract was a tying arrangement, nonetheless rejected the argument that it was per se illegal or that it unreasonably restrained competition among anesthesiologists. The court reasoned that the hospital’s 30% share of the market did not amount to sufficient market power in the provision of hospital services in the Jefferson Parish area. Pointing out that every patient undergoing surgery needed anesthesia, the court found no evidence that any patient received unnecessary services, and it noted that the tying arrangement that was generally employed in the health care industry improved patient care and promoted hospital efficiency.

Tying arrangements in health care are frequently analyzed under a rule of reason standard instead of the strict per se standard, and the favorable decision in this specific case depended heavily on the hospitals’ relatively small market power.

Finally, consider a case on insurance reimbursement and a group boycott against a third-party payer. In Federal Trade Commission v. Indiana Federation of Dentists (476 U.S. 447 [1986]), dental health insurers in Indiana attempted to contain the cost of dental treatment by limiting payments to the least expensive yet adequate treatment suitable to the needs of the patient. The insurers required the submission of x-rays by treating dentists for review of their insurance claims.

Viewing such review of diagnostic and treatment decisions as a threat to their professional independence and economic well-being, members of the Indiana Dental Association and later the Indiana Federation of Dentists agreed collectively to refuse to submit the requested x-rays. These concerted activities resulted in the denial of information that dental customers had requested and had a right to know, and forced them to choose between acquiring the information in a more costly manner or forgoing it altogether.

The lower court had ruled in favor of the dentists, but the U.S. Supreme Court reversed. It agreed that in the absence of concerted behavior, an individual dentist would have been subject to market forces of competition, creating incentives for him or her to comply with the requests of patients’ third-party insurers. But the conduct of the federation was tantamount to a group boycott, which unreasonably restrained trade. The court noted that while this was not price fixing as such, no elaborate industry analysis was required to demonstrate the anticompetitive character of such an agreement.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk", and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at [email protected].

Question: On antitrust, the U.S. courts have made the following statements, except:

A. To agree to prices is to fix them.

B. There is no learned profession exception to the antitrust laws.

C. To fix maximum price may amount to a fix of minimum price.

D. A group boycott of chiropractors violates the Sherman Act.

E. Tying arrangement in the health care industry is per se illegal.

Answer: E (see Jefferson Parish Hospital below). In the second part of the 20th century, the U.S. Supreme Court and other appellate courts began issuing a number of landmark opinions regarding health care economics and antitrust. Group boycotts were a major target, as was price fixing. This article briefly reviews a few of these decisions to impart a sense of how the judicial system views free market competition in health care.

In AMA v. United States (317 U.S. 519 [1943]), the issue was whether the medical profession’s leading organization, the American Medical Association, could be allowed to expel its salaried doctors or those who associated professionally with salaried doctors. Those who were denied AMA membership were naturally less able to compete (hospital privileges, consultations, etc.).

The U.S. Supreme Court held that such a group boycott of all salaried doctors was illegal because of its anticompetitive purpose, even if it allegedly promoted professional competence and public welfare.

Wilk v. AMA (895 F.2d 352 [1990]) was the culmination of a number of lawsuits surrounding the AMA and chiropractic. In 1963, the AMA had formed a Committee on Quackery aimed at eliminating chiropractic as a profession. The AMA Code of Ethics, Principle 3, opined that it was unethical for a physician to associate professionally with chiropractors. In 1976, Dr. Wilk and four other licensed chiropractors filed suit against the AMA, and a jury trial found that the purpose of the boycott was to eliminate substantial competition without corresponding procompetitive benefits.

The U.S. Court of Appeals for the Seventh Circuit subsequently affirmed the lower court’s finding that the AMA violated Section 1 of the Sherman Act in its illegal boycott of chiropractors, although the court did not answer the question as to whether chiropractic theory was in fact scientific. The court inquired into whether there was a genuine reasonable concern for the use of the scientific method in the doctor-patient relationship, and whether that concern was the dominating, motivating factor in the boycott, and if so, whether it could have been satisfied without restraining competition.

The court found that the AMA’s motive for the boycott was anticompetitive, believing that concern for patient care could be expressed, for example, through public-education campaigns. Although the AMA had formally removed Principle 3 in 1980, it nonetheless appealed this adverse decision to the U.S. Supreme Court on three separate occasions, but the latter declined to hear the case.

In Goldfarb v. Virginia State Bar (421 U.S. 773 [1975]), the Virginia State Bar enforced an "advisory" minimum fee schedule for legal services. The U.S. Supreme Court found that this was an agreement to fix prices, holding, "This is not merely a case of an agreement that may be inferred from an exchange of price information ... for here a naked agreement was clearly shown, and the effect on prices is plain."

The court rejected the defendant’s argument that the practice of law was not a trade or commerce intended to be under Sherman Act scrutiny, declaring there was to be no "learned profession" exemption.

However, it noted that special considerations might apply, holding that "It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts, which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently."

Following Goldfarb, there remains no doubt that professional services – legal, medical, and other services – are all to be governed by the antitrust laws.

A flurry of health care–related antitrust cases, including Patrick v. Burget (to be discussed in part 3), reached the courts in the 1980s. In Arizona v. Maricopa County Medical Society (457 U.S. 332 [1982]), the county medical society set maximum allowable fees that member physicians could charge their patients, presumably to guard against price gouging. However, the U.S. Supreme Court, using the tough illegal per se standard, characterized the agreement as price fixing, despite it being for maximum rather than minimum fees.

The court ruled, "Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting perhaps the erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. ... Maximum prices may be fixed too low ... may channel distribution through a few large or specifically advantaged dealers. ... Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices."

At issue in Jefferson Parish Hospital District No. 2 v. Hyde (466 U.S. 2 [1984]) was an exclusive contract between a group of four anesthesiologists and Jefferson Parish Hospital in the New Orleans area. Dr. Hyde was an independent board-certified anesthesiologist who was denied medical staff privileges at the hospital because of this exclusive contract. The exclusive arrangement in effect required patients at the hospital to use the services of the four anesthesiologists and none others, raising the issue of unlawful "tying," where a seller requires a customer to purchase one product or service as a condition of being allowed to purchase another.

In a rare unanimous decision, the U.S. Supreme Court, while agreeing that the contract was a tying arrangement, nonetheless rejected the argument that it was per se illegal or that it unreasonably restrained competition among anesthesiologists. The court reasoned that the hospital’s 30% share of the market did not amount to sufficient market power in the provision of hospital services in the Jefferson Parish area. Pointing out that every patient undergoing surgery needed anesthesia, the court found no evidence that any patient received unnecessary services, and it noted that the tying arrangement that was generally employed in the health care industry improved patient care and promoted hospital efficiency.

Tying arrangements in health care are frequently analyzed under a rule of reason standard instead of the strict per se standard, and the favorable decision in this specific case depended heavily on the hospitals’ relatively small market power.

Finally, consider a case on insurance reimbursement and a group boycott against a third-party payer. In Federal Trade Commission v. Indiana Federation of Dentists (476 U.S. 447 [1986]), dental health insurers in Indiana attempted to contain the cost of dental treatment by limiting payments to the least expensive yet adequate treatment suitable to the needs of the patient. The insurers required the submission of x-rays by treating dentists for review of their insurance claims.

Viewing such review of diagnostic and treatment decisions as a threat to their professional independence and economic well-being, members of the Indiana Dental Association and later the Indiana Federation of Dentists agreed collectively to refuse to submit the requested x-rays. These concerted activities resulted in the denial of information that dental customers had requested and had a right to know, and forced them to choose between acquiring the information in a more costly manner or forgoing it altogether.

The lower court had ruled in favor of the dentists, but the U.S. Supreme Court reversed. It agreed that in the absence of concerted behavior, an individual dentist would have been subject to market forces of competition, creating incentives for him or her to comply with the requests of patients’ third-party insurers. But the conduct of the federation was tantamount to a group boycott, which unreasonably restrained trade. The court noted that while this was not price fixing as such, no elaborate industry analysis was required to demonstrate the anticompetitive character of such an agreement.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk", and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at [email protected].

Question: On antitrust, the U.S. courts have made the following statements, except:

A. To agree to prices is to fix them.

B. There is no learned profession exception to the antitrust laws.

C. To fix maximum price may amount to a fix of minimum price.

D. A group boycott of chiropractors violates the Sherman Act.

E. Tying arrangement in the health care industry is per se illegal.

Answer: E (see Jefferson Parish Hospital below). In the second part of the 20th century, the U.S. Supreme Court and other appellate courts began issuing a number of landmark opinions regarding health care economics and antitrust. Group boycotts were a major target, as was price fixing. This article briefly reviews a few of these decisions to impart a sense of how the judicial system views free market competition in health care.

In AMA v. United States (317 U.S. 519 [1943]), the issue was whether the medical profession’s leading organization, the American Medical Association, could be allowed to expel its salaried doctors or those who associated professionally with salaried doctors. Those who were denied AMA membership were naturally less able to compete (hospital privileges, consultations, etc.).

The U.S. Supreme Court held that such a group boycott of all salaried doctors was illegal because of its anticompetitive purpose, even if it allegedly promoted professional competence and public welfare.

Wilk v. AMA (895 F.2d 352 [1990]) was the culmination of a number of lawsuits surrounding the AMA and chiropractic. In 1963, the AMA had formed a Committee on Quackery aimed at eliminating chiropractic as a profession. The AMA Code of Ethics, Principle 3, opined that it was unethical for a physician to associate professionally with chiropractors. In 1976, Dr. Wilk and four other licensed chiropractors filed suit against the AMA, and a jury trial found that the purpose of the boycott was to eliminate substantial competition without corresponding procompetitive benefits.

The U.S. Court of Appeals for the Seventh Circuit subsequently affirmed the lower court’s finding that the AMA violated Section 1 of the Sherman Act in its illegal boycott of chiropractors, although the court did not answer the question as to whether chiropractic theory was in fact scientific. The court inquired into whether there was a genuine reasonable concern for the use of the scientific method in the doctor-patient relationship, and whether that concern was the dominating, motivating factor in the boycott, and if so, whether it could have been satisfied without restraining competition.

The court found that the AMA’s motive for the boycott was anticompetitive, believing that concern for patient care could be expressed, for example, through public-education campaigns. Although the AMA had formally removed Principle 3 in 1980, it nonetheless appealed this adverse decision to the U.S. Supreme Court on three separate occasions, but the latter declined to hear the case.

In Goldfarb v. Virginia State Bar (421 U.S. 773 [1975]), the Virginia State Bar enforced an "advisory" minimum fee schedule for legal services. The U.S. Supreme Court found that this was an agreement to fix prices, holding, "This is not merely a case of an agreement that may be inferred from an exchange of price information ... for here a naked agreement was clearly shown, and the effect on prices is plain."

The court rejected the defendant’s argument that the practice of law was not a trade or commerce intended to be under Sherman Act scrutiny, declaring there was to be no "learned profession" exemption.

However, it noted that special considerations might apply, holding that "It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts, which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently."

Following Goldfarb, there remains no doubt that professional services – legal, medical, and other services – are all to be governed by the antitrust laws.

A flurry of health care–related antitrust cases, including Patrick v. Burget (to be discussed in part 3), reached the courts in the 1980s. In Arizona v. Maricopa County Medical Society (457 U.S. 332 [1982]), the county medical society set maximum allowable fees that member physicians could charge their patients, presumably to guard against price gouging. However, the U.S. Supreme Court, using the tough illegal per se standard, characterized the agreement as price fixing, despite it being for maximum rather than minimum fees.

The court ruled, "Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting perhaps the erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. ... Maximum prices may be fixed too low ... may channel distribution through a few large or specifically advantaged dealers. ... Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices."

At issue in Jefferson Parish Hospital District No. 2 v. Hyde (466 U.S. 2 [1984]) was an exclusive contract between a group of four anesthesiologists and Jefferson Parish Hospital in the New Orleans area. Dr. Hyde was an independent board-certified anesthesiologist who was denied medical staff privileges at the hospital because of this exclusive contract. The exclusive arrangement in effect required patients at the hospital to use the services of the four anesthesiologists and none others, raising the issue of unlawful "tying," where a seller requires a customer to purchase one product or service as a condition of being allowed to purchase another.

In a rare unanimous decision, the U.S. Supreme Court, while agreeing that the contract was a tying arrangement, nonetheless rejected the argument that it was per se illegal or that it unreasonably restrained competition among anesthesiologists. The court reasoned that the hospital’s 30% share of the market did not amount to sufficient market power in the provision of hospital services in the Jefferson Parish area. Pointing out that every patient undergoing surgery needed anesthesia, the court found no evidence that any patient received unnecessary services, and it noted that the tying arrangement that was generally employed in the health care industry improved patient care and promoted hospital efficiency.

Tying arrangements in health care are frequently analyzed under a rule of reason standard instead of the strict per se standard, and the favorable decision in this specific case depended heavily on the hospitals’ relatively small market power.

Finally, consider a case on insurance reimbursement and a group boycott against a third-party payer. In Federal Trade Commission v. Indiana Federation of Dentists (476 U.S. 447 [1986]), dental health insurers in Indiana attempted to contain the cost of dental treatment by limiting payments to the least expensive yet adequate treatment suitable to the needs of the patient. The insurers required the submission of x-rays by treating dentists for review of their insurance claims.

Viewing such review of diagnostic and treatment decisions as a threat to their professional independence and economic well-being, members of the Indiana Dental Association and later the Indiana Federation of Dentists agreed collectively to refuse to submit the requested x-rays. These concerted activities resulted in the denial of information that dental customers had requested and had a right to know, and forced them to choose between acquiring the information in a more costly manner or forgoing it altogether.

The lower court had ruled in favor of the dentists, but the U.S. Supreme Court reversed. It agreed that in the absence of concerted behavior, an individual dentist would have been subject to market forces of competition, creating incentives for him or her to comply with the requests of patients’ third-party insurers. But the conduct of the federation was tantamount to a group boycott, which unreasonably restrained trade. The court noted that while this was not price fixing as such, no elaborate industry analysis was required to demonstrate the anticompetitive character of such an agreement.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk", and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at [email protected].